Do I Need to Pay Zakat on the Full £13,000 Each Year, or Only on the Remaining Principal and Unpaid Profit?

Answered by Shaykh Muhammad Carr

Question 

I understand that zakat is due on both the invested capital and any accrued profit in fixed-return investments structured under Murabaha.

For example, if I invest £10,000 in a Murabaha agreement that yields a fixed profit of £3,000 over three years, my total return will be £13,000. The profit is paid monthly, and so far, I’ve received £1,000 in the first year. The remaining amount owed to me is the original £10,000 and £2,000 of profit.

This year, I paid zakat on the full £13,000. My question is: Do I need to continue paying zakat on the entire £13,000 every year, or only on the outstanding principal and the unpaid profit?

ِAnswer

In the Name of Allah, the Most Merciful and Compassionate.

May Allah reward you abundantly for your commitment to fulfilling this sacred obligation. Zakat is one of the fundamental pillars of Islam, emphasizing both spiritual growth and social responsibility. Allah says, “Accept charity offerings from their wealth, cleansing and making them grow thereby to full purity in faith and deed.” [Quran, 9:103].

In essence, you are owed a debt of £13,000, of which £3,000 represents the profit from the sale that generated the amount due to you. This type of debt is not an on-demand repayment liability; therefore, zakat does not have to be dispensed immediately.

You must pay zakat on the first £1,000 upon receiving it. If you spend it afterwards, the obligation for zakat on that amount no longer applies. Upon receiving the second £1,000, you must pay zakat for two years retrospectively; and for the third £1,000, zakat must be paid for three years. When you receive the £10,000, you must pay zakat retrospectively for three years.

Murabaha Agreement 

Fixed-return investments based on the Murabaha model are permissible. In your case, the £3,000 represents the fixed return to which you are entitled. This return is generated through a marked-up resale of the purchased item. As the investor, you are entitled to the sale proceeds, which consist of your initial capital of £10,000 used to finance the purchase, along with the £3,000 markup. Your return is therefore treated as an account receivable.

However, it is impermissible to issue negotiable Sukuk where the underlying assets consist solely of Murabaha contracts or other receivables [AAOIFI].

It is important to consult a local scholar, as relevant details may not be mentioned here that could significantly affect the answer.

I pray this is of benefit, and Allah guides us all.

[Shaykh] Muhammad Carr
Checked and Approved by Shaykh Faraz Rabbani

Shaykh Muhammad Carr has dedicated his life to studying and transmitting our beautiful deen. His studies have taken him around the globe, where he has benefitted from many luminaries. Under the guidance of his teachers – Shaykh Taha Karan, Shaykh Yaseen Abbas, Shaykh Muadh Ali, and many others – Shaykh Muhammad has grown to appreciate the beauty and benefits of diverse scholarship. He completed his memorization of the Qur’an at Dar al-Ulum Zakariyyah in September 1997 and received an Alimiyya Degree in 2006 from DUAI (Darul Ulum al-Arabiyyah al-Islamiyyah). He is also affiliated with Masjid Auwal in Bo Kaap, Cape Town (the oldest mosque in South Africa), where he serves as a co-imam, and Dar Al-Safa, where he has taught since 2018. As a teacher, he imparts the wisdom of our heritage and tradition by opening the door for students. As an imam, he has the unique opportunity to serve his community in daily life.

In addition to his roles as a teacher and imam, Shaykh Muhammad Carr has contributed significantly to the administrative and advisory aspects of Islamic institutions. Since 2023, he has served as the Administrative Director at The Imam Kurani Institute, contributing to the institution’s growth and development. He continues to pursue traditional Islamic Sciences, possessing a keen interest in Islamic Contract Law and Finance. Shaykh Muhammad has been a Shari’ah Board Member for Islamic Asset Management & Insurance Companies since 2001, aligning financial practices with Islamic principles.